Theresa May Dares to Risk Upsetting China

At last Britain seems to have a prime minister in Theresa May who means business, and is not primarily interested in playing to the gallery like her predecessor, David Cameron, and his Chancellor of the Exchequer henchman, George Osborne, did both at home and abroad.

A Financial Times columnist has reported that Whitehall officials are saying it feels like having a new government rather than just a change of prime minister.

This means that old assumptions about how the government will react and about who matters around town have to be re-calibrated.

People in India, and especially in Delhi (where I live), have been experiencing that with Narendra Modi’s government replacing the Gandhi dynasty two years ago. He has overturned an established elite and governs on his own terms.

In Britain the change has been dramatically illustrated by May’s unexpected decision on the evening of July 28 to delay final confirmation of an £18 billion (US$26 billion) nuclear power station at Hinkley Point in Somerset that would lead to China having direct involvement in Britain’s electricity supplies.

The plan is for state-owned China General Nuclear Power to provide about a third of the finance in a joint venture with EDF, a French utility company with UK electric power interests. The UK government would buy electricity for £92.50 per megawatt hour – double the current wholesale price – for 35 years. The European Pressurized Reactor (EPF) technology involved is unproven because two projects in Finland and France have yet to be commissioned and are years behind schedule and far over budget.

China expects, as part of its Cameron-Osborne deal, to follow this with its own Hualong technology for two more power projects at Sizewell in Suffolk and Bradwell in Essex.

That breathtakingly irrational gift of control over sizeable chunks of Britain’s electricity supplies (Hinkley would be a significant beginning at 7 percent) has been aptly dubbed by critics as the most extravagant of Osborne’s and Cameron’s “vanity projects.”

David Cameron (left) and George Osborne in the House of Commons

Another is HS2, a widely-criticized plan for a high speed railway link of dubious financial viability between London and Birmingham, for which Chinese investment has also been desperately sought despite cost estimates as high as £90 billion, up from an official 2011 figure of around £50 billion.

There has been extensive debate and concern internationally over the security risk of doing business with China in sensitive areas – most of its currentUS$30 billion investments in the UK are not sensitive though it does have a stake in Thames Water.

The debate has focused in the past mostly on telecom networks, especially as I noted in 2012, those made by Huawei for countries such as the US (which has banned it on government contracts), the UK (where BT and others use it extensively) and India where it is well entrenched.

It was argued then by John Gapper, a leading Financial Times columnist, that it was too late to eliminate Huawei because “the time to declare telecoms a strategic, protected industry like defense, was 20 years ago.”

Well, the time to declare and make nuclear power a protected strategic industry is surely now. China has to be regarded as a potential future enemy by the west, as it already is by its Asian neighbors. Hinkley would be operating for around 50 years and no one – not even Beijing’s leaders – can predict where and what fights China will begin over that time scale.

Currently China is challenging its neighbors in the South China Sea by asserting no-fly zones and by claiming sovereignty over islands and sea lanes, international maritime rules, despite a recent international court ruling in the Hague rejecting the claims. This could lead to confrontations with countries in that area and with the US.

If Hinkley goes ahead with Chinese money, the UK would presumably have to remain a silent spectator instead of backing its allies in such a situation. Would a Cameron-Osborne government have even dared to vote against China at the United Nations?

The investments crystallized into a £30 billion wish list when President Xi Jinping made a state visit to the UK last October. He was given a royal welcome and rode down the ceremonial Mall to Buckingham Palace in a gilded carriage with Queen Elizabeth. (Narendra Modi got invited to the palace for lunch a few weeks later but went by car).